Competitive Advantage of Wal Mart
With 3960 stores in the US and more than $209 billion in annual sales, Wal-Mart stands top in its position and it is an incessantly profit-driven company. With profit as the goal and service as the process the company is at its core. This corporate culture enterprises the profit by making Wal-Mart stores the merchant of choice for many consumers.
Customers of Wal-Mart give value to the value of the dollar and are able to buy the branded products at low discount prices. Sam Walton’s philosophy was that he believed keeping the prices below everybody’s price.
Basic Retail Concepts
Wal-Mart is formulated around four retail concepts. The first concept is the basis of the company is left over on its discount stores, which have been following the same pattern since the company’s foundation. The second concept is that it combines Wal-Mart supercenter with a discount store. The third concept is the Wal-Mart neighbourhood market that provides the services of a traditional grocery store. The fourth concept is the Sam’s Wholesale Club, which is intrinsically a membership warehouse store that accomplishes a continually changing inventory.
Walton’s strategy of analyzing the competitors gave Wal-Mart chance to learn from their competitors and to increase the company’s profit by lowering the prices compared to its direct competitors. Wal-Mart carries the image of
Walton strategy of analyzing competitors gave Wal-Mart possibility to learn from competitors and to increase its profit by pricing lower than its direct competitors carrying the image of “Everyday low prices”.
Wal-Mart stores operate on an “Everyday Low Prices” philosophy and are capable to maintain their price cutting strategy through diligent expense control. Wal-Mart associates endeavours to provide marvellous customer service which is a characteristic unique to the chain. Shopping at Wal-Mart is a friendly experience to every customer. As Wal-Mart has a necessity of high turnover ratio it depends on extreme turnover of goods to generate high profits. Wal-Mart generates small profits on each and every sale, but has many sales per unit of inventory.
There are many ways for a company to have a competitive edge. These are price, quality, flexibility, time, service, employees, and product or service differentiation. The most common way used by Wal-Mart to have a competitive price is to make low cost to customers because most of the customers will look for the lowest price in the market.
Drive out costs
Wal-Mart plan has been to retrieve the costs out of the stores, from the manufacturers’ profit margins, merchandise brokers and other middlemen by reducing the prices at the retail level. Driving out costs has been formed by maintaining partnerships with vendors, proper selection of store locations, knowing the numbers, knowing its competition and by taking care of customers.
The success gained by Wal-Mart is extensively due to maintaining a competitive advantage over its competitors. Wal-Mart has also constantly developed its strategic internal assets and has been creating barriers to entry for potential competitors. Wal-Mart has been continually achieving economies of scale, acquiring the unique resources, good reputation and a brand value by offering differentiation and guarantees to its customers.
Economies of Scale
As a big firm, Wal-Mart has achieved economies of scale. As Wal-Mart is a big company and has many locations, unit costs have decreased and any other firms wishing to enter the market must do so at a large scale. This makes very difficult, if not impossible for new entrants. Although economies of scale provide a apparent competitive advantage, emulating firms will look for becoming larger to minimize the role of economies of scale. This is the reason Wal-Mart has to constantly innovate and look forward for new competitive advantages.
Electronic Data Interchange System
Distribution channels of Wal-Mart were very efficient and it allowed for low pricing, thus creating another barrier to entry for firms who are wishing to enter the market. Wal-Mart was also developed unique resources which are not used before. It installed a new barrier to entry when it developed its EDI system which is Electronic Data Interchange system which improved communication with the suppliers and the distribution centres. By developing the EDI system Wal-Mart has also improved inventory control.
Wal-Mart has differentiated itself from its huge competition. It has launched many superstores which offer groceries and also a good shopping environment. It has been successful in creating a brand name and good reputation as the leader in the industry. Their everyday low prices philosophy was influential in developing the loyalty of customers that prompted the growth of the company. This constancy in price and service empowered Wal-Mart to establish a reputation of loyalty. Customer loyalty has been increased by development of reputation and brand name which has helped in reducing the price elasticity of demand. Wal-Mart also offers guarantees and return policies which assure the customers of their purchase. Method of providing guarantees and warranties also act as a barrier to entry because new entrants also provide high quality goods and offer customers competitive services which are often very difficult.
Finally Wal-Mart has three competitive advantages like they have developed a hub-and-spoke distribution network which is very efficient and low cost and increased its delivery schedule. It also has a god market position where it has placed itself as a market leader. Its Policy everyday low prices enabled them to have two main competitors like Target and Kmart. Wal-Mart also has a good Human Resource Management and employees of Wal-Mart are very committed. Because of its good impact on the market, everybody feels proud of being a Wal-Mart employee.
In conclusion Wal-Mart has maintained a competitive advantage through its ceaseless innovation. It was able to maintain its economic profit even though it has competition from other firms. It has continuously implemented various barriers to entry and developed internal strategic assets.Order Now